When the Iron Curtain was lifted in 1989, the onlycountry in Europe that earned a per capital GDPappreciably higher than the US was Luxembourg, asmall country and a major banking centre. Norway, acountry with important oil reserves, and Switzerlandreached roughly the US level. Poorer European countrieslike Greece, Spain, Portugal, and Ireland achievedroughly half of the aggregate value added reportedfor the US. This put them at around the same level asthe best-performing eastern European countries, theCzech Republic and Slovenia — the former still partof Czechoslovakia and the latter still an autonomousYugoslavian republic. Measured in terms of its percapita GDP, Bulgaria was four times poorer than the US.By 2007 a total of 23 European countries had movedcloser to closing the gap on the US, including 21 of the27 EU member states.

One of the reasons for the huge gap separating Europefrom America was the former’s political fragmentation.Those interested in exporting goods from Lisbon toRiga were forced to pass six border checkpoints and tocome to terms with two fundamentally different politicalsystems. It was necessary to fill out forms in sevennational languages, to comply with a hotchpotch ofrules, and to contend with two different railroad gauges.It was virtually impossible for job seekers to move inthe opposite direction. Not only was that bothersome,even dangerous at borders where officials had orders toshoot persons attempting to leave a country “illegally”— it at the same time stifled economic growth. It preventedcountries from making use of what economistsrefer to as “comparative advantages”, i.e. a situation inwhich nations specialize in those goods which they canproduce and export better and more efficiently than others.In this way all countries concerned stand to becomebetter off, and gain more from trade, than if they themselvesproduced everything they needed.